When you file your 2018 tax returns they may look different. Here are a few of the biggest changes:
Tax rate changes: Both individual and corporate rates have changed. The maximum individual rate is reduced to 37% and the corporate rate is now a flat 21%. The rate change could benefit you — or in some cases may cause your tax liability to go up – especially if you have miscellaneous deduction (line 27 on your 2017 Schedule A). These deductions are not be allowed in 2018 and subsequent years (Federal only).
Standard deduction increases – but you lose the personal exemptions. For single or married individuals the net effect is close to zero. If you have children see what was changed in the next paragraph that offset the loss of the personal exemption for your children.
Increased Child Tax Credit and new Dependent Credit: The credit is increased for each child to $2,000 (up to $1,400 of which is refundable for each child) that has not reached the age of 17. Also, each non-child dependent can now receive a new credit of $500.
The phase out thresholds for these credits are drastically increased. Married taxpayers filing a joint return can claim the full credits if their adjusted gross income is $400,000 or less ($200,000 for all others). The credits are fully phased out for married taxpayers filing a joint return when their adjusted gross income reaches $440,000 ($240,000 for all others). This means that many more taxpayers will be able to claim these credits in 2018 and beyond.
Disappearing deductions: Beginning with the 2018 tax year, you will NO longer be able to deduct:
- State income tax and property taxes (in aggregate) above $10,000 per year in total;
- Moving expenses (with an exception for certain military)
- Employee business expenses such as mileage, travel, entertainment, home office expenses, union dues, tax preparation fees, and investment fees, among others (Federal only)
- Mortgage interest beyond interest on $750,000 of acquisition debt for purchases in 2018 and later
- Mortgage interest paid on equity debt
- Line of credit debit are no longer deductible for any taxpayers
- Investment management fees
- Union dues, tax preparation fees, and other
Some new benefits for individuals: These new benefits include:
- The medical expense AGI threshold will temporarily drop to 7.5% of AGI
- The AMT threshold is increased – fewer middle-income taxpayers will be subject to AMT
- The estate tax exclusion has nearly doubled, to $10 million (adjusted for inflation)
- The annual gift tax exclusion is $15,000 for 2018. The maximum rate on gifts is 35%.
Small business benefit: Beginning in 2018, there will be up to a 20% deduction from net business income for a sole proprietorship, LLC (excluding those taxed as a C corporation), partnership, S corporation, and rental activity. The rules are incredibly complex and the IRS is still preparing guidelines.
As these changes are not necessarily simple, I suggest you make an early appointment so you are not surprised at the last moment before income taxes are due.